EYE ON WASHINGTON: FEDERAL HIRE ACT
Eye On Washington is ADP's business legislative update designed to provide timely information on potential and enacted legislation that impacts employers from a payroll, tax and compliance perspective.
Updated March 23, 2010
President Obama has signed into law the Hiring Incentives to Restore Employment (HIRE) Act, which is focused on accelerating the hiring of unemployed workers.
The HIRE Act has many provisions that impact employers, including a payroll tax exemption, and increased tax credits for employers that meet certain eligibility requirements. The legislation immediately enhances employers’ cash flow by permitting employers to retain the employer portion of the Social Security tax ordinarily remitted.
Social Security Tax Exemption
The 6.2% Employer Social Security Tax exemption applies to previously unemployed individuals hired after February 3, 2010 who have worked less than 40 hours during the 60-day period prior to employment and whose 2010 wages paid after March 18, 2010 and before January 1, 2011 do not exceed $106,800.*
- Employers can save the 6.2% Employer Social Security Tax, whether they hire a $40,000 worker, or a $90,000 worker. Employers, including nonprofit organizations, and colleges and universities, would not have to wait until 2011 to benefit from this tax relief because savings would accrue with each payroll processed.
- The legislation also encourages businesses to hire workers earlier in the year because the tax benefit will be greater. For example, a $60,000 worker hired on April 1 saves an employer about $2,800 in taxes. Delaying the hiring until June 1 would reduce savings to about $2,200.
- This exemption has no cap or limit as to the total amount of tax benefits that can be claimed by an employer. Employers can save up to $6,622 per qualifying worker, whether they hire one worker or hundreds of new workers.
Tax Credit
Employers will receive an income tax credit, which is either $1,000 for each qualifying worker hired after February 3, 2010, and employed for at least 52 consecutive weeks, or 6.2% of wages paid to the qualifying worker over the 52-week period, whichever is less. Wages during the last 26 weeks must be at least 80 percent of wages paid for the first 26 weeks.
- Any new hire must certify "by signed affidavit," under penalties of perjury, that he/she has "not been employed for more than 40 hours during the 60-day period ending on the date such individual begins such employment."
- Neither the 6.2% Employer Social Security Tax exemption nor the retention tax credit is permitted if a person is hired to replace another employee "unless such other employee is separated from employment voluntarily or for cause."
ADP provides comprehensive payroll and tax administration services as part of its broad suite of HR solutions for employers of every size and type. As an ADP client, you can count on us to provide services that help you understand and take advantage of complex employment-related tax credits, as outlined above.
As part of our continued commitment to service our clients, ADP adapted our payroll system to accommodate the need to capture this incentive by eliminating the employer-paid component of the applicable FICA tax.
In addition, for companies who do not want to be burdened with the administrative and compliance requirements of the HIRE Act legislation, ADP offers an outsourced tax credit screening solution through ADP’s Tax Credit Services (TCS) business. ADP’s Outsourced Tax Credit Screening Solution is designed for any ADP Tax Credit Services client; any ADP National Accounts client or prospect with greater than 1,000 employees; and any ADP Major Accounts payroll client with between 50 to 999 employees who will hire 200 or more employees this year.
For more information on ADP's Tax Credit outsourced solution please, call 888-5-ADP-SAVE (1-888-523-7728) or click here for further details.
The information on this site is provided solely as a courtesy and should not be construed as legal advice. Your legal counsel should be consulted for updates on law and guidance that may have an impact on your organization and the specific facts related to your business.
* The 6.2% Employer Social Security Tax exemption applies to previously unemployed individuals hired after February 3, 2010 who have worked less than 40 hours during the 60-day period prior to employment and whose 2010 wages paid after March 18, 2010 and before January 1, 2011 do not exceed $106,800. If an otherwise qualifying individual earns more than $106,800, then the Employer Social Security Tax exemption only applies to the first $106,800 of qualifying wages. Other conditions may apply.
Additional Details: To qualify for the $1000 business tax credit, an employee must be hired after February 3, 2010 and employed for at least 52 consecutive weeks. Other conditions may apply. Wages paid to otherwise-qualifying individuals prior to enactment of the HIRE Act are still subject to the Social Security Tax. As part of this calculation, it is assumed that all February wages and half of March’s wages are subject to the Social Security Tax. Actual results may vary and may depend on when the HIRE is finally passed into law.
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